Tax Treatment of Landlords has to be Revisited

[Leo]

This is the one myth that can't be killed.

The tax framework for REITs is designed so that it is broadly similar to how an individual would be treated in the circumstances.

REITs allow for lots of smaller investors to come together and also to take advantage of economies of scale from professional management.

Yeah, I mean I wish I could enjoy lower tax rates on my income jut because someone operating a similar line of business but living in a tax haven can do so...

 

[Right Winger]

Yeah, I mean I wish I could enjoy lower tax rates on my income jut because someone operating a similar line of business but living in a tax haven can do so...

You left out one ever so important, teensy, weensy little detail. And that is that "someone operating a similar line of business" in Ireland "but "living in a tax haven" will indeed pay similar rates of Irish income tax as you do. (They may pay even more as they don't necessarily get Irish tax credits and bands.) If they incorporate, their company is liable for Irish corporation tax and CGT.

REITs are different. We've been around this mulberry bush several times now. The reality doesn't change.

 

[The Horseman]

Yeah, I mean I wish I could enjoy lower tax rates on my income jut because someone operating a similar line of business but living in a tax haven can do so...

The tax system can and should be used to achieve benefits to society. We had a lower corporation tax to boost our tax take. We had section 23 relief etc to encourage particular outcomes.
Why cant we see the bigger picture and use the tax system to "encourage" certain behaviour. Remember the vast majority of private landlords are your normal ordinary "Joe Soap".
Most people are blinded by the idea that a private landlord could benefit from favourable tax treatment rather than seeing the bigger picture.

 

[Leo]

Why cant we see the bigger picture and use the tax system to "encourage" certain behaviour. Remember the vast majority of private landlords are your normal ordinary "Joe Soap".

If you can explain how a reduction in tax take for small landlords will result in thousands of new properties being built, then there might be some merit to it.

And for the record, we own a rental property.

 

[Leo]

REITs are different. We've been around this mulberry bush several times now. The reality doesn't change.

That's the point, they are very different, so shouldn't be used as the basis for justifying lower income tax rates for small time landlords.

 

[Right Winger]

If you can explain how a reduction in tax take for small landlords will result in thousands of new properties being built, then there might be some merit to it.

Well, a reduction in tax take for big landlords apparently worked, didn't it? And thousands of new properties were duly built. Not surprisingly as this was the very justification for introducing the REIT regime in the first place!

So, why oh why, is it so difficult to imagine a reduction in tax take working to incentivise small landlords to do the same?

(Remember Section 23, 28, etc etc. That achieved the building of thousands of new properties. Not necessarily the right type in the right location, but details can be tweaked.)

 

[The Horseman]

If you can explain how a reduction in tax take for small landlords will result in thousands of new properties being built, then there might be some merit to it.

And for the record, we own a rental property.

Ok we have already seen that (or at least is on its way) a reduction in the income tax for the fair deal scheme result more existing empty properties that can become rental properties.

What about those landlords who are intentionally leaving properties empty as renting them does not make commercial sense? I expect there are some out there?

What about holiday homes? I would expect some of them could be used with the right financial incentives.

Some landlords are cashing out because either they are out of negative equity and no longer want to subsidise a rental property as the net tax take is less than mortgage payments. These properties leave the rental market and as such decrease the no of bed spaces. (Owner occupiers who purchase ex rentals rarely have same occupancy rates as the same properties had as rentals).

Solving this issue is not just about new supply its also about encouraging existing supply to remain in the market. I emphasise the work encourage rather than force.

 

[Leo]

So, why oh why, is it so difficult to imagine a reduction in tax take working to incentivise small landlords to do the same?

Because small landlords very rarely, if ever finance housing developments on any scale.

There is massive demand out there for property right now that is not being met. Explain to me how putting a few hundred or a few thousand into the pockets of a few landlords would have any effect on that?

 

[Leo]

What about holiday homes? I would expect some of them could be used with the right financial incentives.

Holiday homes tend to be in locations that have lower rental demand.

What about those landlords who are intentionally leaving properties empty as renting them does not make commercial sense? I expect there are some out there?

No doubt there are, but at a time of record rents, would a few hundred really make that much of a difference?

Some landlords are cashing out because either they are out of negative equity and no longer want to subsidise a rental property as the net tax take is less than mortgage payments.

Subsidise it? Are they not making any capital payments?

Solving this issue is not just about new supply its also about encouraging existing supply to remain in the market. I emphasise the work encourage rather than force.

Agreed, but when we're delivering tens of thousands of units below demand anything that doesn't directly address new supply is just papering the cracks.

 

[T McGibney]

Because small landlords very rarely, if ever finance housing developments on any scale.

Where did you get this idea from? It couldn't be further from the truth. Basically every small town development in the country built within the past 25 years was financed and got off the ground by resort where necessary to an available pool of almost exclusively small investors, upon which the developer could rely if there was slow demand from owner-occupiers.

 

[The Horseman]

Holiday homes tend to be in locations that have lower rental demand.

No doubt there are, but at a time of record rents, would a few hundred really make that much of a difference?


Subsidise it? Are they not making any capital payments?


Agreed, but when we're delivering tens of thousands of units below demand anything that doesn't directly address new supply is just papering the cracks.

I would rather a roof over my head rather than a homeless hub or a hotel room.

A few hundred could be the difference between positive and negative cash flow.

Again every additional property is one less homeless family. This buys time until more supply comes on board.

 

[Leo]

Where did you get this idea from? It couldn't be further from the truth. Basically every small town development in the country built within the past 25 years was financed and got off the ground by resort where necessary to an available pool of almost exclusively small investors, upon which the developer could rely if there was slow demand from owner-occupiers.

Can you point to evidence of that? Most of the developments I'm familiar with were financed by developers and targeted at owner-occupiers. I'm not aware of any that were funded to a large degree by multitudes of small landlords.

 

[T McGibney]

Can you point to evidence of that?

No, why would I bother digging into archives to do that?

Most of the developments I'm familiar with were financed by developers and targeted at owner-occupiers. I'm not aware of any that were funded to a large degree by multitudes of small landlords.

You obviously don't know much about how the building industry operated in rural Ireland and in provincial towns from around 1997 on. The business model I described was very common if not dominant.

 

[Right Winger]

Can you point to evidence of that? Most of the developments I'm familiar with were financed by developers and targeted at owner-occupiers. I'm not aware of any that were funded to a large degree by multitudes of small landlords.

The Irish Times thinks otherwise!

Section 23 tax relief developments a roaring success story for investors

Residential schemes with Section 23 tax relief continues to attract those seeking a tax shelter for rental income, 15 years after…

www.irishtimes.com

 

[NoRegretsCoyote]

Basically every small town development in the country built within the past 25 years was financed and got off the ground by resort where necessary to an available pool of almost exclusively small investors,

I don’t think that’s been true since about 2010 or so. And it did have big risks which cyrystallised around that time.

I am agnostic about who does the building or buying once things get built. 50k new dwellings per annum for a decade really would be a panacea.

 

[T McGibney]

I don’t think that’s been true since about 2010 or so.

Well obviously, as there's barely been a new development built anywhere in rural Ireland and provincial towns since then.

And it did have big risks which cyrystallised around that time.

The presence of investors and the general pro-investor environment negated most of those risks.

 

[Leo]

No, why would I bother digging into archives to do that?

If it was such a common practice it would surely be easy to provide evidence, without it.

You obviously don't know much about how the building industry operated in rural Ireland and in provincial towns from around 1997 on. The business model I described was very common if not dominant.

Weird, because I have family in the business, one quite close to your hometown and that's not how they operate at all. None of them are aware of small landlords getting into the business of financing developments. They are using the regular business cashflow or borrowings to get developments off the ground until they are at the stage where they can start taking deposits.

Also, why are you trying to limit the scope to rural Ireland when the vast majority of development occurs around the major population centres?

 

[Leo]

The Irish Times thinks otherwise!

Section 23 tax relief developments a roaring success story for investors

Residential schemes with Section 23 tax relief continues to attract those seeking a tax shelter for rental income, 15 years after…

www.irishtimes.com

You wither don't understand the point or Section 23 relief which applied to the purchase of a property, not an investment in the financing of developments.

Remember, the point here is that small landlords are not bringing new properties to the market, and there's no likely tweak that could be made to their taxation that would change that situation.

 

[T McGibney]

If it was such a common practice it would surely be easy to provide evidence, without it.

Hardly. Few small time builders if any have ever advertised their modi operandi in national or social media. And I'm most certainly not going to divulge anyone else's private business information here

Weird, because I have family in the business, one quite close to your hometown

Where is my hometown?

 

[Leo]

Hardly. Few small time builders if any have ever advertised their modi operandi in national or social media. And I'm most certainly not going to divulge anyone else's private business information here

If it was such common practice they'd have nothing to hide.

Where is my hometown?

Perhaps I should rephrase to the town where your office is located.